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Duties Owed by An Operator to a Non-Operator Under Voluntary Agreements & Compulsory Orders

Ernest E. Smith, Onshore Pooling and Unitization (1997)

The duty owed by an operator to non-operators under voluntary and forced pooling and unitization plans is merely one aspect of a series of highly contentious questions in oil and gas law: What standard of conduct is generally required of operators when taking actions that affect non-operators? Is the standard of conduct the same for all actions taken by the operator or is it variable, depending upon the action in question? Does (or should) that standard differ if joint operations are the result of agency compulsion, rather than voluntary agreement? What effect does agency approval of a proposed unitization or pooling plan have on the operator's duties?

This paper will focus on the duty owed by an operator in the situation that has received the most attention by courts and commentators: The operator's duty to non-operators in voluntarily pooled units governed by traditional operating agreements. In examining the operator's duty in this context, it will attempt to determine whether that level of duty should be affected if the pooling is forced rather than voluntary, or if the parties have entered into a unitization agreement, either voluntarily or through agency order.

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